TRADING STRATEGY EUR/USD vs. GBP/USD
If there is one thing we as traders can learn from Don it is to make sure we only trade whenever the odds are in our favour. We do that by trading the currency
pair
which carries the lowest cost in relation to its average true range
with the broker who offers the tightest
spread.
The ATR is a measure of volatility a very
and reliable
indicator of how big a range we expect
can to see
during a trading day. So which currency
pair
makes the most sense to trade? Most people in Europe have a personal interest in either EUR/ USD or GBP/ USD as they have,
at one
time or another had to exchange their domestic currency for U.S. Dollars when they went on vacation or bought something online. Most also have an idea of what they think the U.S. Dollar is worth. Hence either of these pairs will likely be the starting point for anyone’s FX career.
your only motive is to keep costs at a minimum. A roulette wheel has 18 red squares and 18 black squares. The difference lies in the number of green squares. In American roulette, there are two green squares, 0 and 00. In European roulette there is only one green square, 0. That gives the
Don Johnson by negotiating took understanding home the $15 the terms of million
playing blackjack. He won all that money by
probabilities and the game ROULETTE AND SPREADS
There is a fitting analogy between the two different versions of roulette and FX spreads that will help decide which of the crosses to trade if
FX
European wheel a house advantage of 2.7 percent while the American wheel sports a massive 5.7 percent edge. So which one would you play? The answer, of course, is none because the probabilities of winning are not on your side and you would be
guaranteed (ATR)
to lose if you only stayed long enough. But if you had to try your luck at one of them then surely you would choose the European roulette because
disadvantage is not as bad as playing the American one.
Using the same logic
we
illustrate the
will in
following
example that unless you have an information adv antag e with
regards to GBP/USD
it makes much more sense trading EUR/USD. The former has in the last 100 days moved an average of 97 pips a day and typically has a 1.5-pip spread compared to a 1-pip spread on EUR/USD, which on average moved 98 pips a day in the same period. So you give up 1.02 percent of the ATR
FX TRADER MAGAZINE April - June 2013 37
wheel your
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